The History of the Value of Pound

7/31/2019 The History of the Value of Pound

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RESEARCH PAPER 06/09

13 FEBRUARY 2006

Inflation: the value of

the pound 1750-2005

The Library is often asked how the purchasing powerof the pound has changed over various periods.

This paper presents data back to 1750. Between 1750and 2005, prices increased nearly 150-fold. Since1914, prices have increased 77-fold.

This paper updates RP03/82.


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Summary of main points

This paper presents a price index covering the period 1750 to 2005, illustrating the

way in which the purchasing power of the pound has changed over the long-term.

Over the period as a whole, prices have increased nearly 150-fold. Thus, one

decimal penny in 1750 would have had greater purchasing power than a pound in

2005.

Prices were around 20% lower in 1939 compared to 1919.

Since 1945 prices have risen in every year. In 2005, prices were nearly 30 times

higher than 1945.


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CONTENTS

I Introduction 7II Sources 8III Results and interpretation of tables 8IV Specimen calculations 10V Data 12List of tables and charts

Table 1: Price Index 1750-2005 12Table 2: Purchasing power of the pound 1755- 2005 20

Table 3: Purchasing power of the pound 1987- 2005 21

Chart 1: Retail prices index 1750-2005 (linear scale) 17

Chart 2: Retail prices index 1750-2005 (log scale) 18

Chart 3: Value of the pound 1750-2005 (linear scale) 18

Chart 4: Value of the pound 1750-2005 (log scale) 19

Chart 5: Annual percentage change in prices 1750-2005 19


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I Introduction

Inflation - the increase in the general level of prices over a specified period - reduces the

internal value of a currency. So, if prices double, any given (nominal) amount of

currency will buy half the goods and services it previously did. On the other hand

(although unusual in the UK since the Second World War) a period of falling prices

results in an increase in purchasing power.

This paper presents a price index covering the period 1750 to 2005 and illustrates the

changing purchasing power of the pound over the long-term. No attempt is made tomeasure changes in the external value of the currency as a result of movements in

exchange rates, but changes in the prices of imported goods are reflected in the price

index.

It must be stressed that, for a number of reasons, such an exercise is very approximate.

Expenditure patterns have changed dramatically over the past 250 years. Many

products now commonly purchased (cars, electrical appliances, processed foods, etc)

simply did not exist in 1750 and, conversely, goods that consumed a large share of

household budgets in the eighteenth century - candles for instance - are now an

insignificant part of most families expenditure.

It is, however, possible to compare price levels over the long-term by linking price indices

covering relatively short periods into a single series. Even so, indices covering only a

few years can become unrepresentative if they are not adjusted to reflect changes in

expenditure patterns. Todays Retail Prices Index (RPI), for example, is annuallyupdated to reflect changes in consumers tastes, and new products and services. For

example, pre-recorded cassette albums were taken out of the 2002 RPI basket of

representative goods and services, while DVD players and recordable CDs came in.

A further problem with long-term comparisons involves changes in the quality of goods.

For example, while it is possible to compare the price of a Mini motor car today with that

of one in 1959, it is much more difficult to identify the degree that the increase in price

reflects an improvement in manufacturing quality and specification.

In addition, the further one looks back into history, the more difficult it is to obtain reliable

information. The first official consumer price index started in 1914. This was the Cost of

Living Index (COLI) that reflected changes in the cost of providing a standard of living

l t i ki l h h ld Th l i d f hi h b f


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II Sources

Information on changes in prices comes from two main types of source. The more

familiar are consumer price indices such as the RPI.1 An alternative measure can be

derived from estimates of household expenditure in the national accounts statistics; a

price deflator for household expenditure can be calculated as expenditure data are

produced at both current and constant prices. The price index presented in this paper is

derived from the following sources. Further details of source materials are available from

the Library:

1947 to 2005

The all-items RPI as published by the Office for National Statistics. (The all-items RPI

includes mortgage interest payments.) Annual data are the average of monthly figures.2

1870 to 1947

The implied deflator for consumers expenditure derived from the unofficial national

accounts of the UK based on the structure of expenditure in 1938 and produced by the

Department of Applied Economics at Cambridge University.3

1850 to 1870

A retail price index constructed by Sir Walter Layton and Geoffrey Crowther covering the

period 1850 to 1933. The index for the period 1850 to 1870 is a reproduction of earlier

work by G H Wood from the Board of Trades Report on Wholesale and Retail Prices

and Cooperative Society records.4

1750 to 1850

An index of consumables prices constructed by E H Phelps-Brown and Sheila Hopkins

covering the period 1264 to 1954.5

III Results and interpretation of tables

Table 1 (pages 12-17)

The first column shows the price index, based on January 1974 = 100.6 The second

column (purchasing power of the pound) shows how much a pound is worth in real terms

each year from 1750 to 2005, relative to January 1974. For example, between January

1974 and 1978, prices increased by 97.1%. Hence, a pound would have been reduced


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in value by nearly a half over this period. The table shows its value as 50.7 (pence) in

1978. In other words, 1 in 1978 would buy the same bundle of goods and services as

50.7 pence would have bought in January 1974.7

Conversely, in 1943 the price index was 24.8 (ie prices were around a quarter of the

January 1974 level). Hence, a pound in 1943 was worth roughly four times a pound in

1974. The table shows its value as 403.1 (pence) in 1943. In other words, 1 in 1943

would buy the same bundle of goods and services as 403.1 pence in January 1974.

The third column shows the annual percentage change in the price index (ie the inflation

rate).

Tables 2 and 3 (pages 20-21)

Tables 2 and 3 are conceptually similar to the middle column of Table 1. Table 1 allows

comparisons between January 1974 and any year between 1750 and 2005. Tables 2

and 3 allow both the years in the comparison to vary. They are both produced using the

same methodology. Table 2 contains data at twenty year intervals: 1755, 1775 and soon. Table 3 contains data for each year from 1987.

These tables can best be explained by use of an example from Table 2. If we look at the

column headed 1955 and the row 1855, the value is 409. From Table 1, we know the

price index for 1855 is 10.5 while for 1955 it is 43.1. In other words, prices have

increased by around four times over this period. Hence a pound in 1855 was worth

roughly four times a pound in 1955 due to the increase in prices over this period.

Conversely, if we consider the 1975 row, the figure is 32. The price index for 1975 is

134.8, indicating that prices are around three times higher than in 1955. A pound in

1975 is thus worth the same as 32 pence in 1955 (ie the pound lost around two thirds of

its value due to inflation between 1955 and 1975).

When prices are increasing, the values in the columns will fall as you read downwards,

showing the decreasing value of the pound over time. When prices are falling, the

values will increase as the purchasing power of the pound increases.

Charts

Chart 1 (page 17) plots the price index for the period 1750 to 2005. Although such a

graph illustrates the extent to which the absolute increase in prices has been


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on linear and logarithmic scales respectively. Chart 5 (page 19) plots the rate of inflation

in each year.

Results

Over the period as a whole, prices have risen nearly 150-fold. Thus one (decimal) penny

in 1750 would have had greater purchasing power than a pound in 2005.

Although there was considerable year-on-year fluctuation in price levels prior to 1914

(reflecting the quality of the harvest, wars, etc) there was not the long-term steady

increase in prices associated with the period since 1945. Prices in 1914 were roughly

twice their level in 1750 but were below the level of the early nineteenth century. Prices

doubled during the First World War but in most years between 1921 and 1938 they fell or

showed very small increases. Although prices began to rise during the Second World

War, the increase was less marked than during the First World War. Since 1945 prices

have risen in every year: prices were nearly 29 times higher in 2005 compared to 1945.

In the period 1974 to 1981, inflation was above 10% in each year except 1978, and

prices more than tripled in these eight years. Despite lower inflation rates in the late1980s and early 1990s, and very low (by post-war standards) rates in recent years,

prices still rose by over 50% between 1990 and 2005.

IV Specimen calculations

The examples below illustrate how the price index in Table 1 can be used to answerfrequently asked questions.

Example 1:

How much would have been needed in 2005 to have the same purchasing power as

100 in 1850?

From Table 1 the price index for 1850 was 8.4 and the index for 2005 was 757.3. In

2005 the average price level was 90.2 times (757.3/8.4) the 1850 level. Thus, to have

the same purchasing power as 100 in 1850 one would have needed some 9,020 (90.2

x 100) in 2005.

E l 2


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Example 3:

Cheddar cheese cost 17 pence per kilogram in 1923 and 5.63 per kilogram in 2005.8

How did the price change in real terms?

From Table 1 the price index for 1923 was 18.7 and the index for 2005 was 757.3. In

2005 the average price level was 40.5 times (757.3/18.7) the 1923 level. Over the same

period the price of cheese rose 33.1 times (563/17). Thus, in real terms, the price has

fallen by 18.3% [((33.1/40.5)-1) x100].


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V Data

Table 1: Price Index 1750-2005

Table 1Price Index 1750-2005

Purchasing power

Price index of the pound Change in prices

Year Jan 1974 = 100 Jan 1974 = 100 pence on year before

1750 5.1 1,961.6 -3.1%1751 5.0 2,016.3 -2.7%

1752 5.2 1,925.7 4.7%

1753 5.1 1,978.4 -2.7%

1754 5.3 1,881.9 5.1%

1755 5.0 2,002.3 -6.0%

1756 5.2 1,922.5 4.2%

1757 6.3 1,578.9 21.8%

1758 6.3 1,583.2 -0.3%

1759 5.8 1,719.7 -7.9%

1760 5.6 1,799.9 -4.5%

1761 5.3 1,884.9 -4.5%

1762 5.5 1,814.0 3.9%

1763 5.7 1,766.9 2.7%

1764 6.2 1,623.2 8.9%

1765 6.4 1,568.2 3.5%

1766 6.5 1,549.3 1.2%

1767 6.8 1,465.0 5.8%

1768 6.7 1,481.9 -1.1%

1769 6.2 1,614.2 -8.2%

1770 6.2 1,620.9 -0.4%

1771 6.7 1,493.4 8.5%

1772 7.4 1,348.9 10.7%

1773 7.4 1,353.6 -0.3%

1774 7.5 1,341.1 0.9%

1775 7.0 1,420.1 -5.6%

1776 6.9 1,452.1 -2.2%

1777 6.9 1,457.6 -0.4%

1778 7.1 1,401.2 4.0%

1779 6.5 1,530.9 -8.5%

1780 6.3 1,585.4 -3.4%

1781 6 6 1 522 8 4 1%


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Table 1 (continued)

Price Index 1750-2005

Purchasing powerPrice index of the pound Change in prices


1790 7.5 1,328.8 1.8%

1791 7.5 1,330.3 -0.1%

1792 7.6 1,310.7 1.5%

1793 7.8 1,274.6 2.8%

1794 8.5 1,183.4 7.7%

1795 9.4 1,060.8 11.6%1796 10.0 996.9 6.4%

1797 9.0 1,107.5 -10.0%

1798 8.8 1,132.4 -2.2%

1799 9.9 1,008.1 12.3%

1800 13.5 738.6 36.5%

1801 15.1 661.0 11.7%

1802 11.6 858.6 -23.0%

1803 11.0 912.7 -5.9%

1804 11.3 884.1 3.2%

1805 13.1 760.9 16.2%

1806 12.6 796.0 -4.4%

1807 12.3 811.0 -1.9%

1808 12.8 784.1 3.4%

1809 14.0 714.9 9.7%

1810 14.4 693.0 3.2%

1811 14.0 713.5 -2.9%

1812 15.9 630.4 13.2%

1813 16.3 615.3 2.5%

1814 14.2 704.8 -12.7%

1815 12.7 788.9 -10.7%

1816 11.6 861.1 -8.4%

1817 13.2 758.4 13.5%

1818 13.2 756.4 0.3%

1819 12.9 775.7 -2.5%

1820 11.7 855.4 -9.3%1821 10.3 972.6 -12.0%

1822 8.9 1,124.7 -13.5%

1823 9.5 1,053.1 6.8%

1824 10.3 970.1 8.6%

1825 12.1 826.7 17.4%

1826 11 4 874 8 5 5%


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Table 1 (continued)


Purchasing powerPrice index of the pound Change in prices


1840 11.1 900.0 1.8%

1841 10.9 921.5 -2.3%

1842 10.0 996.9 -7.6%

1843 8.9 1,123.6 -11.3%

1844 8.9 1,124.7 -0.1%

1845 9.3 1,072.6 4.9%1846 9.7 1,031.5 4.0%

1847 10.9 920.7 12.0%

1848 9.5 1,047.4 -12.1%

1849 8.9 1,118.2 -6.3%

1850 8.4 1,194.4 -6.4%

1851 8.1 1,231.3 -3.0%

1852 8.1 1,231.3 0.0%

1853 8.9 1,126.8 9.3%

1854 10.2 979.0 15.1%

1855 10.5 947.9 3.3%

1856 10.5 947.9 0.0%

1857 10.0 1,003.7 -5.6%

1858 9.1 1,095.8 -8.4%

1859 9.0 1,116.2 -1.8%

1860 9.3 1,076.0 3.7%

1861 9.5 1,047.7 2.7%

1862 9.3 1,076.0 -2.6%

1863 9.0 1,116.2 -3.6%

1864 8.9 1,126.8 -0.9%

1865 9.0 1,116.2 0.9%

1866 9.5 1,047.7 6.5%

1867 10.1 987.1 6.1%

1868 10.0 1,003.7 -1.7%

1869 9.5 1,057.0 -5.0%

1870 9.5 1,057.0 0.0%1871 9.6 1,042.2 1.4%

1872 10.0 995.8 4.7%

1873 10.4 965.6 3.1%

1874 10.0 998.5 -3.3%

1875 9.8 1,017.6 -1.9%

1876 9 8 1 021 0 0 3%


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Table 1 (continued)Price Index 1750-2005

Purchasing power



1890 8.8 1,136.0 0.2%

1891 8.9 1,127.9 0.7%

1892 8.9 1,123.8 0.4%

1893 8.8 1,132.2 -0.7%

1894 8.7 1,154.9 -2.0%

1895 8.6 1,166.8 -1.0%

1896 8.5 1,170.8 -0.3%

1897 8.7 1,154.0 1.5%

1898 8.7 1,150.3 0.3%

1899 8.8 1,142.3 0.7%

1900 9.2 1,086.6 5.1%

1901 9.2 1,081.4 0.5%

1902 9.2 1,081.4 0.0%

1903 9.3 1,077.6 0.4%

1904 9.3 1,080.3 -0.2%

1905 9.3 1,075.9 0.4%

1906 9.3 1,076.1 0.0%

1907 9.4 1,063.2 1.2%

1908 9.4 1,058.4 0.5%

1909 9.5 1,052.8 0.5%

1910 9.6 1,043.7 0.9%

1911 9.6 1,042.2 0.1%

1912 9.9 1,012.4 3.0%1913 9.8 1,016.8 -0.4%

1914 9.8 1,019.4 -0.3%

1915 11.0 906.0 12.5%

1916 13.0 767.4 18.1%

1917 16.3 612.8 25.2%

1918 19.9 502.3 22.0%

1919 21.9 456.4 10.1%

1920 25.3 395.4 15.4%1921 23.1 432.5 -8.6%

1922 19.9 502.9 -14.0%

1923 18.7 535.0 -6.0%

1924 18.6 538.9 -0.7%

1925 18.6 537.1 0.3%

1926 18 5 541 6 0 8%


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Table 1 (continued)


Purchasing power



1940 20.2 494.8 16.8%

1941 22.4 446.4 10.8%

1942 24.0 416.6 7.1%

1943 24.8 403.1 3.4%

1944 25.5 392.5 2.7%

1945 26.2 381.7 2.8%

1946 27.0 370.1 3.1%

1947 28.9 345.8 7.0%

1948 31.1 321.1 7.7%

1949 32.0 312.4 2.8%

1950 33.0 303.1 3.1%

1951 36.0 277.7 9.1%

1952 39.3 254.4 9.2%

1953 40.5 246.7 3.1%

1954 41.3 242.3 1.8%

1955 43.1 231.8 4.5%

1956 45.3 220.9 4.9%

1957 46.9 213.0 3.7%

1958 48.4 206.8 3.0%

1959 48.6 205.6 0.6%

1960 49.1 203.6 1.0%

1961 50.8 196.8 3.4%

1962 53.0 188.8 4.3%

1963 54.0 185.1 2.0%

1964 55.8 179.3 3.3%

1965 58.4 171.1 4.8%

1966 60.7 164.6 3.9%

1967 62.3 160.6 2.5%

1968 65.2 153.4 4.7%

1969 68.7 145.5 5.4%

1970 73.1 136.8 6.4%1971 80.0 125.0 9.4%

1972 85.7 116.7 7.1%

1973 93.5 106.9 9.2%

1974 108.5 92.2 16.0%

1975 134.8 74.2 24.2%

1976 157 1 63 7 16 5%


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Table 1 (continued)


Purchasing power



1990 497.5 20.1 9.5%

1991 526.7 19.0 5.9%

1992 546.4 18.3 3.7%

1993 555.1 18.0 1.6%

1994 568.5 17.6 2.4%

1995 588.2 17.0 3.5%

1996 602.4 16.6 2.4%

1997 621.3 16.1 3.1%

1998 642.6 15.6 3.4%

1999 652.5 15.3 1.5%

2000 671.8 14.9 3.0%

2001 683.7 14.6 1.8%

2002 695.1 14.4 1.7%

2003 715.2 14.0 2.9%

2004 736.5 13.6 3.0%

2005 757.3 13.2 2.8%

Chart 1: Retail prices index 1750-2005 (linear scale)

300

400

500

600

700

800

earscale,

January

19

74

=

100


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Chart 2: Retail prices index 1750-2005 (log scale)

1

10

100

1,000

1750 1800 1850 1900 1950 2000

Logs

cale,

January

1974

=

100

Chart 3: Value of the pound 1750-2005 (linear scale)

1,000

1,500

2,000

2,500

,linearscale,

Januar

y

1974

=1

00


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Chart 4: Value of the pound 1750-2005 (log scale)

10

100

1,000

10,000

1750 1800 1850 1900 1950 2000

pence,

logs

cale,

January

1974

=1

00

Chart 5: Annual percentage change in prices 1750-2005

-10%

0%

10%

20%

30%

40%


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Table 2: Purchasing power of the pound 1755- 2005

Year in which value equals 100 pence

1755 1775 1795 1815 1835 1855 1875 1895 1915 1935 1955 1975 1995 2005

1755 100 141 189 254 178 211 197 172 221 319 864 2,699 11,778 15,164

1775 71 100 134 180 126 150 140 122 157 226 613 1,914 8,353 10,754

1795 53 75 100 134 94 112 104 91 117 169 458 1,430 6,240 8,034

1815 39 56 74 100 70 83 78 68 87 126 340 1,063 4,640 5,975

1835 56 79 106 143 100 119 111 96 124 179 486 1,518 6,622 8,526

1855 47 67 89 120 84 100 93 81 105 151 409 1,278 5,576 7,179

1875 51 72 96 129 90 107 100 87 112 162 439 1,372 5,985 7,7061895 58 82 110 148 104 123 115 100 129 186 503 1,573 6,863 8,836

1915 45 64 85 115 80 96 89 78 100 144 391 1,221 5,329 6,861

1935 31 44 59 80 56 66 62 54 69 100 271 847 3,695 4,757

1955 12 16 22 29 21 24 23 20 26 37 100 312 1,363 1,755

1975 4 5 7 9 7 8 7 6 8 12 32 100 436 562

1995 1 1 2 2 2 2 2 1 2 3 7 23 100 129

2005 1 1 1 2 1 1 1 1 1 2 6 18 78 100

20


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21

Year in which value equals 100 pence

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

1987 100 105 113 124 131 136 138 141 146 150 155 160 162 167 170 173 178 183 188

1988 95 100 108 118 125 130 132 135 139 143 147 152 155 159 162 165 170 175 180

1989 88 93 100 109 116 120 122 125 129 133 137 141 144 148 150 153 157 162 167

1990 81 85 91 100 106 110 112 114 118 121 125 129 131 135 137 140 144 148 152

1991 76 80 86 94 100 104 105 108 112 114 118 122 124 128 130 132 136 140 144

1992 74 77 83 91 96 100 102 104 108 110 114 118 119 123 125 127 131 135 139

1993 72 76 82 90 95 98 100 102 106 109 112 116 118 121 123 125 129 133 136

1994 71 74 80 88 93 96 98 100 103 106 109 113 115 118 120 122 126 130 1331995 68 72 77 85 90 93 94 97 100 102 106 109 111 114 116 118 122 125 129

1996 67 70 75 83 87 91 92 94 98 100 103 107 108 112 113 115 119 122 126

1997 65 68 73 80 85 88 89 91 95 97 100 103 105 108 110 112 115 119 122

1998 63 66 71 77 82 85 86 88 92 94 97 100 102 105 106 108 111 115 118

1999 62 65 70 76 81 84 85 87 90 92 95 98 100 103 105 107 110 113 116

2000 60 63 68 74 78 81 83 85 88 90 92 96 97 100 102 103 106 110 113

2001 59 62 66 73 77 80 81 83 86 88 91 94 95 98 100 102 105 108 111

2002 58 61 65 72 76 79 80 82 85 87 89 92 94 97 98 100 103 106 109

2003 56 59 64 70 74 76 78 79 82 84 87 90 91 94 96 97 100 103 106

2004 55 57 62 68 72 74 75 77 80 82 84 87 89 91 93 94 97 100 1032005 53 56 60 66 70 72 73 75 78 80 82 85 86 89 90 92 94 97 100

Table 3: Purchasing power of the pound 1987- 2005

Documents

The History of the Value of Pound